Barclays’ [BARC] share price is firmly in the spotlight at the moment, but it’s not all good news. Keeping the bank in the press for all the wrong reasons is a £1.5 billion lawsuit from Amanda Staveley's (pictured) investment firm PCP regarding the bank’s 2008 fundraising with Qatar.
The uncertain outlook for the UK economy as a whole isn’t helping Barclays’ share price either. Dire economic data and concerns over the cost of loan defaults are weighing not only on Barclays, but the rest of the banking sector.
For bargain hunters, though, Barclays’ relatively diversified business model could make the share price one to watch. So, is now the time to buy, or is there more volatility to come?
What's happening with Barclays’ share price?
Barclays’ share price is down 37% since the start of the year. In March, the stock nosedived with the introduction of lockdown measures across the UK, and it started trading in April at circa 80p. From there, it mounted a recovery before topping out at 131.8p on 8 June. Barclays’ share price has flagged since then, trading at 116.64p through 21 July’s close.
Barclays' YTD share price fall
Will a High Court case weigh on Barclays' share price?
One headache Barclays could do without is its ongoing High Court tussle with PCP. In the lawsuit, PCP alleges that Barclays made secret side agreements with Qatar, which included two £4 billion cash calls, to avoid the bank having to take a government bailout in the wake of the 2008 financial crisis.
Giving evidence in court, the bank’s former chairman of Middle Eastern business, Roger Jenkins, said that, had Barclays had to take bailout money, it would have been forced to pursue a “domestic agenda”. Details of Jenkins’ hefty £50 million plus exit package were also brought under scrutiny.
PCP claims that two advisory service agreements between Barclays and Qatar were in fact fabricated in order to conceal fees. While the bank denies all of PCP’s allegations, Barclays’ share price could suffer if it loses the case given the size of the lawsuit.
Investment banking could help Barclays’ share price weather the storm
Barclays’ business model is more diversified than many other banks on the high street, including Lloyds. In first-quarter results, revenue was driven by the strength of Barclays’ investment banking operation, which saw a 77% increase in trading income thanks to turbulent markets.
Having such diversification is handy considering the current environment of ultra-low interest rates. It also means that Barclays is able to use some of its income from investment banking as a buffer for bad loans. In Q1 Barclays decided to set aside £2.1 billion for credit impairment charges, a huge jump from last year's £448 million. For context, Lloyds, the UK's biggest lender, set aside £1 billion.
Filippo Alloatti, an analyst at asset manager Federated Hermes told the Financial Times:
“Barclays has opted to take a big front-loading of credit reserves, there is a bit of the take-the-pain-and-move-on attitude on display at the US banks earlier. The quarter was strong in terms of revenues, especially at the investment bank, and that permitted the group to aggressively build provisions.”
“Barclays has opted to take a big front-loading of credit reserves, there is a bit of the take-the-pain-and-move-on attitude on display at the US banks earlier. The quarter was strong in terms of revenues, especially at the investment bank, and that permitted the group to aggressively build provisions” - Filippo Alloatti, Federated Hermes analyst
So, time to buy Barclays?
For the bargain hunters, now could be the time to buy into the bank. With the UK economy edging out of lockdown and a robust investment banking business, Barclays’ share price looks well-positioned to rebound post-coronavirus.
That said, second-quarter results due on 29 July will likely see pressure from low-interest rates and narrowing profit margins intensify. Whether this will create another buying opportunity for Barclays remains to be seen.
Barclays’ share price has a 135p average price target from analysts tracking it on the Financial Times. Hitting this would see an 18.36% upside on the current share price (through 21 July’s close).
|PE ratio (TTM)||10.13|
|Quarterly Revenue Growth (YoY)||-13.2%|
Barclays share price vitals, Yahoo Finance, 22 July 2020